The Stimulus Package Won't Work Part 3: The Congressional Budget Office Study
This is now my third post in the past two weeks on how terribly ineffective the government stimulus package that is supposed to be our salvation will likely be.
In post one, The myth of the coming infrastructure boom, I determined that only around 17% of the total $825 billion package will be spent on actual infrastructure projects.
In post two, The more I look at the stimulus package, the less I like it, I dug deeper into how much of the money would be spent on entrenched politicians' pet projects rather than on useful things that would actually create permanent jobs and help make America better and more efficient.
I also touched upon how a huge chunk of the spending will once again come in the form of a one-time $500 kickback to some taxpayers, despite the fact that the previous round of checks that the government sent out last year did little to actually stimulate the economy.
This brings us to post three, The Congressional Budget Office Study. The CBO published a report today detailing when the stimulus money will actually get spent. According to the CBO, 64% of the package will be spent in 2009 and 2010. Well, that's not terrible I guess...but wait, a significant chunk of that is the stupid $500 tax credits that people probably won't even spend.
After the tax credits are backed out, only half (52%) of the money in the plan will be put to work over the next two years, supposedly 15% in 2009 and 37% in 2010. Hmmmm, that's a lot smaller than I thought it would be, but at least it's something. Well, it's worse than that because I doubt that it backs out things like the $87 billion is for a temporary increase in the Medicade matching rate, $43 billion for increased unemployment benefits, $39 billion in healthcare for newly unemployed workers, $20 billion for food stamps. All of these things are nice and they help people who are in need, but they do almost nothing to stimulate the economy. Also, it probably includes $79 billion in state fiscal relief that is probably merely replacing money that the states have spent in the past but can no longer afford.
Much of the money that is actually going to be spent on infrastructure projects won't be spent for years. The CBO said that provisions to increase energy efficiency and renewable energy use would ultimately be spent within seven years. It also estimated that would take five years to spend 85% of the money dedicated to highway and other infrastructure projects. Keep in mind that this is the government's own estimate as to how quickly the plan will be implemented, which is likely very overoptimistic.
The CBO report even specifically states that "congressional authorizations for sharp increases in spending have typically been followed by a noticeable lag in actual spending." No Ship Sherlock. The government is a large, inefficient beast. This plan isn't going to be nearly as simulative for the economy as many would like us to believe.
We need to put people to work by creating permanent jobs that help benefit American for years to come. Things like the improvement of the power grid and improving mass transit. We need to make things and shift our energy consumption to domestic sources and we need to do it ASAP. Think how much better off the economy would be if you could purchase a plug-in electric vehicle manufactured by a domestic company and plug it into the wall to recharge it with electricity generated by a domestic resource like natural gas, nuclear power, wind, solar...whatever anything that doesn't ship money and jobs to the Middle East and manufacturing jobs to Japan. This is just a hypothetical example of something that would benefit the economy for the long run and create permanent jobs.
I am far from a protectionist. I want a global economy with free trade. Idiotic protectionist tariffs made the Great Depression worse. I just want America to actually produce stuff that other people want. The problem with this country is we spent all of our time and resources creating money out of thin air using leverage and smoke and mirrors or serving each other lattes. America needs to produce actual stuff in order to get back on our feet. The government can spend money wisely to steer us down that path...or it can continue to piss away the tax revenue of future generations on short term Band-Aids that don't solve our problems.
As Indiana Representative Mike Pence put it the current version of the bill "won't stimulate anything except more government and more debt." The long-term cost of this huge, wasteful package could balloon to $1.2 trillion over the next ten years. It might help the economy a little, but it won't be nearly as effective as many investment advisors and many in the media would like us to believe and the cost to us and future generations will be astronomical.
I like Obama and I think that he is the right man for the job, but I remain extremely unimpressed with the stimulus package that he is pushing right now. The government needs to either spend our money wisely or not spend it at all.